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Monday, April 22, 2013

The Econ Con: Rogoff and Reinhart edition

Rather than tease my friends in economics I'll just refer you, e.g., to this blog post by Krugman and this thread on Econ Job Rumors.

Ulam to Samuelson: name a single result in economics that is both true and non-trivial. (Don't give me comparative advantage. I doubt Ulam would find that non-trivial. Ulam and Samuelson were Harvard Junior Fellows together.)

That sounds like something that a certain type of economist would say. The rest of us would respond, "Okay, in that case, let's keep it out of:1) contract enforcement - no use of the court system for fraud or failure to otherwise carry out an agreement nor to determine liability or ownership of any good2) market regulation, including what can be sold (think FDA) any kind of health or safety regulation involving goods that are (or can be) exchanged (FDA, EPA, OSHA) anything to do with pollution - these can always be stated in terms of ownership rights, which have already been ruled out (EPA) anything to do with claims about the properties of goods that are or can be exchanged (think FCC)

I'm sure I've overlooked some important restrictions, but I think I've limited the government to an army to keep out foreign invaders. Inside the country, we can duke it out just like in Renaissance Italy.

2) sounds mostly fine. 1) is not akin to government's role in religion.

The primary role of government in religion is guaranteeing freedom of religion. By analogy, government's role in the economy should be guaranteeing economic freedom. Economic freedom includes contract enforcement, freedom from coercion, etc.

Don't economists run stuff past statisticians before talking about results?

I thought this was standard practice in all disciplines that use stats, I know I always checked with statisticians before doing stats, and I apparently have more stats background than some high flying economists. Once you start getting into making sure you always round 0.5 to even (or odd) numbers to avoid introducing bias, pulling out non-parametric results, you suddenly discover you want to use proper statistical software and not spreadsheets (which can do these things if you prod them hard enough - but why bother when the proper tool for the job just does it - and always includes "n" in the printed results so you can check you got all the data).

R&R did some egregious things in their famous paper, and tried to pass it off as having deep policy implications. It is a black eye for the profession of economics, and this goes way beyond some simple Excel mistakes.

There is no way to keep the government out of economy under FIAT. Where do you think money comes from? When you pay tax, you drain money from the system, where do you think money comes from back in to a system? It's only possible by government running deficits. This is very basic, yet many top economists don't understand this simple fact. R&R don't understand it as well, since in their paper they compared deficits of countries under gold standard and FIAT. Comparing Greece vs USA for example is absolutely ridiculous.